ASIAN

INTELLIGENCE
An Independent Fortnightly Report on Asian Business and Politics
No. 895

Wednesday March 19, 2014

Corruptions Impact on
the Business Environment
Singapore
Japan
Australia
Hong Kong
USA
Macao
Malaysia
Taiwan
South Korea
China
Philippines
Cambodia
Thailand
Vietnam
Indonesia
India

1.60
2.08
2.55
2.95
3.50
3.65
5.25
5.31
7.05
7.10
7.85
8.00
8.25

8.73
8.85
9.15

10

Grades are scaled from zero to 10, with zero being the best grade possible and 10 the worst. The question
asked was: To what extent does corruption detract from the overall business environment?

REGIONAL OVERVIEW
Annual review of corruption in Asia -- 2014
The actual magnitude of corruption in Asia, and the rest of the word for that matter, might well have
declined in recent years, but public perceptions of the problem have become much more critical of its existence.
Within Asia, three factors have contributed to a worsening in perceptions regarding corruption and the
seriousness of governments in fighting it. First, corruption has been increasingly politicized in many countries,

POLITICAL & ECONOMIC RISK CONSULTANCY LTD.

Political & Economic Risk Consultancy, Ltd.

Issue #895

including China, Thailand, India, Cambodia, and Malaysia. By this we mean that political factions are using
accusations of corruption as a way to discredit rivals and even to remove them from the political playing field.
Alternatively, those in opposition have been accusing those in power of being corrupt, often without any hard
proof. Still, the accusations stick, hurt reputations and create suspicions in the publics mind. When those at the
center of a system are so vehement in describing the system as being corrupt, it is no wonder that public
sentiment is turning more negative.
Second, the fight against corruption has been seriously hurt in some countries by the the way those
bodies officially mandated to fight graft have had to wrestle with internal corruption problems. Some of those
problems are self-inflicted, for example when anti-corruption investigators are themselves convicted of
corruption or other crimes (as has happened in Singapore and Hong Kong). Others arise from finger-pointing by
powerful individuals and bodies being targeted by the anti-corruption agencies. The people are trying to
discredit their own accusers (Indonesia is a prime example).
Third, there are numerous examples of senior politicians promising to crack down on corruption only to
backtrack on these campaigns by refusing to pass promised legislation (India) or offering pardons to powerful
figures convicted of corruption (South Korea). The former makes it look like the politicians in power like things
just the way they are, while the latter makes it look like some people really are above the law.
One of the biggest changes in perceptions about corruption revealed by our surveys is that perceptions
of the problem of corruption in the private sector are growing in many countries. Certain government bodies
like police and Customs have been viewed quite negatively for corruption in most Asian countries for years; now
these government bodies are being joined by private sector bodies like the financial sector and real estate
development industries in being seen as places where corruption is concentrated. Making matters worse, legal
systems have failed to prosecute more than a token number of senior executives for corruption. Major banks
have been allowed to pay fines in exchange for escaping criminal prosecution, and bodies responsible for
industry oversight have been moving painfully slowly in their efforts to address the regulatory shortcomings
exposed by the sub-prime crisis and other scandals.
Until a few years ago, people viewed corruption more as a Third World problem in which greedy civil
servants and politicians used their positions of power to enrich themselves and their families. The emphasis of
anti-corruption laws drawn up by developed countries like the US and other OECD members was to discourage
multinationals from these developed countries from bowing to pressure for illegal payouts in emerging countries
as a way to secure licenses, win contracts, and gain investment approvals. However, in the past two years,
governments in some of the countries that have long been rated as having some of the worst corruption have
been cracking down on graft and, in the process, revealing corrupt practices initiated by some major foreign
companies as a way to win business. This has altered the perspective from being one strictly of greedy
government officials victimizing foreign companies to one of senior executives of foreign companies either at
their own initiative or under instructions from their head offices trying to induce innocent government
officials and civil servants into granting favors in exchange for illegal payments.
Clearly, there are no innocents in either of these perspectives. They are guilty on both sides of the
transactions. Our survey responses tend to reflect this over the years by showing a bigger deterioration in
perceptions toward developed countries than toward developing ones, which have been graded negatively all
along. Interestingly, it is not all that uncommon for politicians in both developed and developing countries to be
prosecuted and jailed for graft. However, what is much more uncommon is for prominent private sector
business leaders to be tried, convicted and jailed. The two major exceptions here are the two countries with
Communist systems covered by this report. In China and Vietnam, there have been a number of cases where
senior business leaders, including heads of state-owned companies, have been prosecuted and jailed. In a few
cases they have even been executed, which is a punishment that is much more severe than anything metted out

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Political & Economic Risk Consultancy, Ltd.

in developed democracies for similar crimes. Still, the problem of corruption in China and Vietnam is rated to be
much worse than in most developed, democratic countries. While there is truth to this perception, we suspect
there is also a strong bias involved.
There has also been a trend in most countries we survey, be they developed or developing, toward more
difficulty in meeting internal compliance standards. This is the flip side of corruption. It does not necessarily
mean that multinationals and banks that have investments in Asia are now more conscious about internal
corruption risks (although this is frequently the case). It can also mean that companies and banks that are
comfortable with their internal cultures and processes are growing more frustrated with the time and money
they need to spend to monitor their internal activities and double-check their processes. This extra vigilance is
needed especially in business centers like Hong Kong and Singapore in order to fight money laundering, tax
evasion and organized crime. All such centers are under increasing pressure to do more to share information
with other jurisdictions, to improve transparency, and to know their customers better. This means hiring more
staff, investing in new equipment, turning away certain kinds of business they previously might have accepted,
and adopting new processes that add to costs and take up the time of senior management. These kinds of
frustrations are also hinted at in our latest survey scores.
We obtained the scores for our latest survey by averaging responses from at least 100 expatriate
executives working in each of the countries surveyed. Respondents provided grades for the country in which
they are working as well as for their home countries. The survey took place between early December 2013 and
early March 2014 and was a combination of direct interviews and mailouts/e-mails. The respondents (there
were 1,833 in total) were directly assessing political leaders, civil servants and key national institutions for their
propensity for participating in corrupt activities. They also gave their opinions on the degree of success that
different countries are having in fighting corruption, the extent that corruption hurts the overall business
environment, how prevalent the problem of bribery is in the private sector, and how much trouble they were
having in dealing with corruption internally. The results of our latest survey, presented in the country sections
that follow this overview, indicate several broad trends:

Within developing countries, there has been a shift so more of the blame for graft is now being levied on
national leaders instead of just on local government leaders.

In general, people are becoming less tolerant of corruption in all countries, and this could account why
perceptions about different magnitudes of the problem are graded more harshly than before. There is not a
single country covered by this report that has not had at least one high-profile corruption case in the past
year. Some, like China, have had dozens.

Public frustration regarding corruption is growing. In addition to our survey results, other evidence of this
frustration is reflected in the large public demonstrations that have taken place in the past year in which
corruption has figured as a major issue (in China, India, Thailand, Malaysia and Cambodia).

There does not seem to be a correlation between the harshness of punishments and the level of corruption
or how it is perceived. The correlation is between countries that have strong institutions leading the drive to
investigate and prosecute corruption vs. countries with weak institutions, which are either ineffective at
fighting corruption or are forced to act strongly only on cases hand-picked by political leaders.

The Philippines is one emerging market economy where overall perceptions regarding corruption have been
improving over the past few years, while views toward the problem of corruption in South Korea remain
more critical than for any other developed economy in the region.

March 19, 2014

ASIAN INTELLIGENCE

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Issue #895

Changes in Perceptions over the Past Decade Regarding Corruption

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Australia

2.24

1.67

0.83

0.98

1.40

1.47

1.39

1.28

2.35

2.55

Cambodia

n.a.

n.a.

9.10

8.50

8.10

8.30

9.27

6.83

7.84

8.00

China

7.68

7.58

6.29

7.98

7.30

6.70

7.93

7.00

7.79

7.10

Hong Kong

3.50

3.13

1.87

1.80

1.74

1.75

1.10

2.64

3.77

2.95

India

8.63

6.76

6.67

7.25

6.50

8.23

8.67

8.75

8.95

9.15

Indonesia

9.10

8.16

8.03

7.98

7.69

9.07

9.25

8.50

8.83

8.85

Japan

3.46

3.01

2.10

2.25

2.63

2.63

1.90

1.90

2.35

2.08

n.a.

4.78

5.18

3.30

3.75

5.71

4.68

2.85

4.23

3.65

Malaysia

6.80

6.13

6.25

6.37

7.00

6.05

5.70

5.59

5.38

5.25

Philippines

8.80

7.80

9.40

9.00

7.68

8.25

8.90

9.35

8.28

7.85

Singapore

0.65

1.30

1.20

1.13

0.92

0.99

0.37

0.67

0.74

1.60

South Korea

6.50

5.44

6.30

5.65

4.97

4.88

5.90

6.90

6.98

7.05

Taiwan

6.15

5.91

6.23

6.55

5.85

5.62

5.65

5.45

5.36

5.31

Thailand

7.20

7.64

8.03

8.00

6.76

7.33

7.55

6.57

6.83

8.25

USA

2.33

2.83

2.28

1.83

2.71

1.89

1.39

2.59

3.82

3.50

Vietnam

8.65

7.91

7.54

7.75

7.40

7.13

8.30

7.75

8.13

8.73

Macao

Grades range from zero to 10, with zero being the best grade possible and 10 the worst.
The specific survey question asked was: To what extent does corruption detract from the overall business environment?

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Issue #895

Political & Economic Risk Consultancy, Ltd.

Corruption Survey for 2014

Average Score

To what extent do you perceive corruption to be a problem in the following positions?

Grading Scale: Not serious 0-1-2-3-4-5-6-7-8-9-10 serious

2014

2013

National-level political leaders

City and other local-level political leaders
Civil servants at the national level
Civil servants at the city level
To what extent do you perceive corruption to be a problem affecting the following institutions?
The police department
The court system
The stock market
Customs
The taxation bureau
Government licensing bodies related to real estate development/land projects
Inspection bodies, e.g., fire, health, environmental compliance
The military
How effective is the system at prosecuting corruption when abuses are uncovered?
0 = effective, 5 = average, 10 = ineffective
How serious is the government about fighting corruption?
0 = serious, 5 = average, 10 = not serious at all
How tolerant are average citizens of corruption?
0 = intolerant, 5 = moderate, 10 = extremely tolerant
How widespread is the problem of bribery by private sector parties?
0 = uncommon, 5 = average, 10 = common
To what extent does corruption detract from the overall business environment?
0 = not at all, 5 = moderately, 10 = a really major detraction
How difficult is it for your organization to deal with corruption?
0 = easy, 5 = average, 10 = difficult
How easy is it building a culture in your organization to meet your compliance standards?
0 = easy, 5 = average, 10 = difficult

Published by:
Political & Economic Risk Consultancy, Ltd.
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Mailing address: G.P.O. Box 1342, Hong Kong

Tel: (852) 2541-4088

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E-Mail: info@asiarisk.com
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The material in this report may not be reproduced in whole or in part without permission in writing from the publisher.
While every effort has been made to collate, check and present without ambiguity all data contained herein, the variety of
sources from which they have been assembled and differing methods of reporting render verification oftentimes impossible.
Thus, they are published without warranty.